markets
Cheap Buys Better Odds
The rule
Buy when the market is dear and your future returns are likely small. Buy when it is scared and cheap, and your odds get much better.
Where it flips
This can fool you into trying to time the market. Cheap can get cheaper, and dear can stay dear for years. That wrecks anyone who jumps fully in or fully out on a price ratio. So let cheapness gently tilt your steady buying, not trigger all-or-nothing bets. And keep buying on schedule through the discomfort.
What you earn from here depends a lot on how costly the market is when you buy in. When prices are stretched high against earnings, future returns tend to be thin, because you paid up for hope. When prices are crushed and the news is scary, expected returns are high, exactly because everyone else is afraid. So the ugliest moments often carry the best long-run odds.
A worked example
During a sharp fall the Nifty PE drops from 28 to 16. Aarvi feels uneasy but stays disciplined. She keeps her SIP running, because a lower buying price quietly lifts her likely return. [illustrative]
How to spot it
- ·prices well above their long history
- ·best returns felt at the scariest times
- ·urge to time your entry on one single ratio
William Bernstein · The Four Pillars of Investing